- 21 June 2017
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While metal fabrication shops experienced a boom in the years that followed World War II, they face a very different environment today. The relatively stable economy and reliable market has given way to an inconsistent market and changing industries. Large deliveries and immense batches have given way to smaller orders. Today’s shops need to acquire specialized equipment and must be able to fabricate and deliver quickly. The end-result is that many shops are finding it difficult to remain profitable.
Neither OEMs nor custom fabricators want to be sitting on large inventories. Finished goods inventories are down, with 54% of shops reporting they’re holding less finished goods inventory in 2016 than in 2013. Cash flow can also be a challenge. A 2015 study by the Fabricators & Manufacturers Association International (FMA) revealed that on average, more than 25% of respondents must wait longer than one month for customers to pay invoices. This combination of slow payments and the need to keep finished goods on hand can create a cash flow problem for fabrication shops.
One solution is for metal fabricators to shorten the manufacturing cycle, a trend that is continuing, according to the FMA’s “2016 Capital Spending Forecast.” But there are other considerations to bear in mind. Read on to discover 3 influential factors for today’s metal fabrication industry.
Changes in Washington have already started to affect metal fabrication in both positive and negative ways. Although it’s difficult to make predictions for the rest of 2017, there are some forecasts:
- Aerospace: After a period of growth that has lasted over a decade, the aerospace industry is now in a period of decreasing demand. But defense spending is expected to be strong.
- Agriculture: High crop yields have driven food prices down, leading the agriculture equipment sector to continue to struggle, especially in large equipment. Many fabricators are turning to smaller agricultural equipment for opportunities.
- Automotive: After several years of strong sales, automotive sales in the U.S. have been on the decline thus far in 2017.
- Defense: An expected increase in the military budget could mean many new projects for companies that service the defense sector.
- Oil and Gas: Before the election, predictions indicated this sector would remain slow, with the determining factor being the price of oil. But projections changed after the election, with expectations of heavy increases in oil and gas production.
2. Overseas Growth
Domestic customers such as the automotive and housing industries can expect to see modest opportunities for growth. Economic expansion is projected for developing countries, with China and India at the forefront. Developing countries have large populations, which combined with increasing wealth as a result of industrialization, indicate the strong potential for rising demand. China’s expanding economy is fueling a transition from a subsistence existence to an increasing middle class. This creates greater demand for more expensive consumer goods such as automobiles and appliances such as refrigerators and air conditioners.
While foreign sales are expected to grow, an element of risk exists due to the fluctuating currency market. A weak American dollar can spell large profits. On the other hand, if the dollar is strong, overseas profits will suffer.
3. Technology Spending
Overall, spending is projected to remain high. According to an FMA report, just under half of the respondents reported capital spending expenditures were on target. More than 27% indicated procurements were deferred indefinitely – a 7% increase from 2015.
The front office is becoming increasingly important. As the industry looks to improve communication methods, it is turning to enterprise resource planning (ERP) systems. To meet customer demand, a shop must have timely access to the right information. This is one reason software spending is increasing, with over 94% of shops indicating software spending will stay at the same level or increase.
The laser cutting segment has already seen major changes this year:
- Spending forecasts for 2017 on disk and solid-state fiber lasers increased by 36% over the previous year.
- Predicted spending on CO2 lasers dropped by 18%.
- Spending on disk and fiber lasers surpassed CO2 lasers last year and indications are this trend will continue.
The distribution of spending remains steady, with spending on forming equipment expected to continue to outperform spending on punching machines and laser cutting equipment.
With fluctuations in the political field, other countries, and the use of technology, the metal fabrication industry faces a year of change. But this needn’t add to pre-existing concerns. In fact, the increasing number of mergers and acquisitions in metal fabrication are boosting long-term growth, improving operating efficiency, and strengthening the struggling industry. With thousands of small private companies, M&A activity is a trend that is expected to continue throughout 2017 and for the foreseeable future.
By keeping an eye on these 3 influential factors, metal fabrication businesses can make additional adjustments to their strategies to stay afloat this year.